Tips on Estate Planning
are a few tips to keep in mind about your life insurance purchase:
1. Take your time. On the other hand, donąt put off
an important decision that would provide protection for your
family. Make sure you fully understand any policy you are
considering and that you are comfortable with the company,
agent, and product.
When you purchase a policy, make your check payable to the
insurance company, not to the agent. Be sure to get a receipt.
After you have purchased an insurance policy, keep in mind
that you may have a free-look period, usually 10 days after
you receive the policy, during which you can change your mind.
During that period, read your policy carefully. If you decide
not to keep it, the company will cancel the policy and give
you an appropriate refund.
Review the copy of your application contained in your policy.
Promptly notify your agent or company of any errors or missing
If an agent or company contacts you and wants you to cancel
your current policy to buy a new one, contact your original
agent or company before making a decision. Surrendering your
policy to buy another could be very costly.
If you have a complaint about your insurance agent or company,
contact the customer service division of your insurance company.
If you are still dissatisfied, contact your state's or province's
insurance department. Most departments have a consumer affairs
division that can offer help, and some have a toll-free number
to respond to consumer requests.
Review your policy periodically or when your situation changes
to be sure your coverage is adequate.
the wealthy need estate planning, right? No. The truth is
that much of what you think will be passed on to your family
may not actually reach them. Because of certain laws and taxes,
your estate could be severely depleted, leaving less for your
family and designated beneficiaries. If you take advantage
of estate planning products and strategies from Northwestern
Mutual, you can plan ahead and preserve more of your assets
for your survivors. In this section we will examine estate
planning processes, concepts and techniques, and the role
of life insurance in estate planning.
Planning Processes - The estate planning process is different
for every individual. Not everyone is in the same life stage,
nor do they have the same objectives and income needs throughout
life. As individuals grow older, their goals may change, but
at any stage in life, most individuals want to manage risk,
accumulate assets and preserve assets with their estate plan.
accomplish these objectives, an estate plan will help you
establish and clarify goals and objectives, identify and quantify
needs, and identify and quantify resources.
of Estate Planning - When constructing your estate plan
there are three major concepts to keep in mind. You should
calculate the assets you own and determine the type of ownership
associated with it. You should evaluate what kinds of property
transfers you want to make before and after your death. And
finally, you should become familiar with how estate shrinkage
occurs and the kinds of death and estate taxes that exist.
of Estate Planning - Once you are familiar with the concepts
behind estate planning, you still need to construct an effective
and personal plan for your own estate. The techniques commonly
used in estate planning are wills, trusts, durable powers
of attorney and gifting. An effective estate plan will implement
these various strategies in a way that will help you satisfy
your needs and accomplish your goals.
Role of Life Insurance - Choosing the right policy to
achieve your estate planning goals is important. Life insurance
proceeds can be used to pay estate or inheritance taxes, preserving
your assets for your heirs.
Policies can be purchased on a single life or on two lives.
A single life policy insures one person and the face amount
is paid at that person's death. A second-to-die or joint life
policy insures two people and the face amount is paid at the
Ten Pitfalls of Estate Planning
an estate can be devastating to a family's finances. Heirs
are often left with many unanticipated expenses, ranging from
debts to taxes to administrative fees. Court and probate records
show that in 75% of the cases, the estates do not have the
cash to pay for these costs. So heirs are often forced to
liquidate assets, like the family home... or the family business.
This hurried liquidation can reduce an estate to a fraction
of its former self. Life insurance is important in estate
planning, because the proceeds from life insurance are payable
immediately and can be used to meet these expenses. Life insurance
helps to ensure that an estate passes to one's heirs... not
to one's tax collectors.
avoid the latter prospect, you may want to be on the watch
for some common pitfalls in estate planning, which we've itemized
for you in the Top 10 Pitfalls section.
should work with an attorney on your individual estate plan.
All estate plans can be checked against the following ten
pitfalls. Although there are more than ten pitfalls to avoid,
it is doubtful that any others could do more damage.
Failure to Make a Proper Will and Revise It Periodically
By failing to prepare a will, a decedent surrenders the right
to distribute his or her property and allows the state to
take over that task. Even after a will has been prepared,
it may be seriously outmoded at death unless reviewed periodically.
2. Lack of Flexibility in Planning
A will must be drafted with enough flexibility to permit heirs
and beneficiaries to deal with emergencies or changing needs.
Ideally, a will should take into account not only current
family requirements, but also future needs. Planning for the
future, however, should not override basic necessities. For
example, a decendent may provide for a child's college education
without permitting proceeds to be diverted for any other purpose
other than college, although the money is desperately needed
for food and shelter.
Not Enough Liquidity at Death
If an estate plan does not provide enough cash to cover final
expenses, valuable assets may have to be sold immediately,
frequently at a fraction of their value. Thus, estate shrinkage
must be taken into account when preparing an estate plan.
One solution is life insurance, which can provide the required
liquidity at death. In addition, life insurance proceeds are
not generally subject to income tax and, when properly structured,
may not be subject to applicable estate taxes.
4. Failure to Plan for Disposal of Business Interest
Intelligent planning can provide a guaranteed buyer for a
business interest at a guaranteed sales price with assurance
that money will be on hand instantly when death occurs. Another
option is for heirs to continue the business. Advance planning
will give them the best possible chance of succeeding.
Failure to Arrange and Integrate Life Insurance with Other
Life insurance policies should be checked periodically and
integrated with other assets, such as Social Security and
stocks and bonds, to form a cohesive plan.
6. Failure to Take Advantage of Tax Saving Mechanisms
Estate plans should be reviewed annually to make sure that
any tax law changes are reflected in the plan and to take
advantage of any new tax-saving method. In fact, any properly
drafted estate plan will strive for the greatest tax savings
Failure to Plan for Retirement
Retirement plans and goals must be specifically identified.
Unless such plans are known, an estate planner cannot determine
whether sufficient funds are available to accommodate retirement
desires. Retirement planning and the next pitfall are interrelated.
8. Overdependence on Government and Employer-Provided Insurance
and Pension Plans
Social Security and pension benefits may be considerable.
But overreliance on them can be disastrous. For example, if
an individual changes jobs and fails to convert group insurance
coverage on time, he or she may become uninsurable and die
grossly underinsured. In another case, an individual may decide
to return to work after retiring. If so, he or she may lose
most Social Security benefits because of regulations governing
Failure to Apportion Sensibly
Funds should be allocated based on your risk tolerance. This
means that life insurance and an emergency savings account
should be primary concerns. Higher-risk investments may be
appropriate if your risk tolerance so permits.
Failure to Prepare an Estate Plan and Review It Periodically
Proper planning and periodic reviews can help eliminate most
common estate planning pitfalls.